RECAPITALISATION:THE BULK of the €24 billion that will be used to recapitalise the Irish-owned banks is to come from the National Pension Reserve Fund (NPRF).
The pension reserve is to contribute €17.5 billion. This will include €7 billion that was placed on deposit with the various institutions by the former minister for finance Brian Lenihan.
The Government hopes to make up the shortfall through a combination of asset sales by the institutions, private investment by existing or new shareholders – which is only likely in the case of Bank of Ireland – burden sharing by subordinated bondholders and a drawdown of external funds from the EU-IMF.
On a conference call with analysts yesterday, the Central Bank of Ireland and the National Management Treasury Agency suggested that subordinated bondholders could contribute up to €5 billion by way of burden sharing. But senior bondholders will not be asked to take a haircut on their holdings.
What is clear is that the situation on funding is very fluid.
The Department of Finance stressed yesterday the Government’s desire not to have to draw on funds from the EU-IMF deal to capitalise the banks.
But such a solution is there should it be needed.
As part of the EU-IMF deal, €35 billion was set aside for the banks. Half of this was to be funded by the pension reserves.
A lot will now depend on the appetite for private investment and how successful AIB, Bank of Ireland and Irish Life Permanent are in selling their assets.
Meanwhile, the dependence of Irish banks on ECB short-term funding is expected to increase over the year ahead, before tapering off as the Government’s deleveraging programme takes effect in the sector.
A Department of Finance spokesman said this is due to the fact that, in the short term, banks will have to repay more debt than they are likely to raise through asset sales.
However, by early next year this reliance is expected to move in a “downward trajectory” as asset run-offs and deleveraging are achieved, and the banks begin to regain access to the wholesale funding market, he said.
The Department of Finance has identified about €77 billion of non-core loans across AIB, Bank of Ireland, EBS and Irish Life Permanent which it believes need to be disposed of. It envisages that about €73 billion of this will be deleveraged by the end of 2013 through disposals and run-offs.